Bank of England Eases Stablecoin Rules to Keep Britain Competitive in Global Digital Currency Race
Key Highlights–
- Bank of England proposes allowing stablecoin issuers to invest up to 60% of reserves in short-term government debt.
- Marks a softer stance after industry backlash over stricter 2023 proposals.
- Aiming to keep Britain competitive as the US, EU, and Singapore advance their own digital-currency frameworks.
The Bank of England (BoE) on Monday unveiled fresh proposals allowing issuers of widely used stablecoins to invest up to 60 per cent of assets backing the tokens in short-term government debt, a significant softening of its previous stance on crypto regulation.
BoE Softens Approach to Boost Stablecoin Growth
Stablecoins, digital tokens pegged to traditional assets like government debt or cash, are becoming a key pillar of the global financial system. The US recently approved a federal stablecoin framework, prompting regulators worldwide to accelerate their own rulebooks.
In 2023, the BoE drew sharp criticism from the crypto industry for proposing that issuers hold all reserve assets with the central bank, which would have earned no interest. Monday’s announcement signals a more flexible approach, requiring only 40 per cent of reserves to be held with the BoE while granting the remainder freedom to earn returns in liquid government securities.
A Strategic Move to Stay Ahead in Global Digital Finance
The relaxed framework is part of Britain’s broader effort to stay competitive in the global digital-currency race, as jurisdictions like the EU, US, and Singapore push ahead with their own stablecoin regimes.
“Today’s proposals mark a pivotal step towards implementing the UK’s stablecoin regime next year,” said Sarah Breeden, BoE Deputy Governor for Financial Stability. “We’ve listened carefully to feedback and amended our proposals for achieving this,” as reported by Reuters.
Analysts say the timing is deliberate. The EU’s Markets in Crypto-Assets (MiCA) rules took effect this year, while Singapore has cemented its status as a digital-asset hub. By contrast, the UK risks losing fintech momentum if regulation is seen as overly restrictive.
Temporary Regime and Central-Bank Backstop
The BoE’s proposal also outlines a temporary regime for stablecoin issuers transitioning from oversight by the Financial Conduct Authority (FCA). Under this arrangement, issuers can initially invest up to 95 per cent of reserves in market instruments before aligning with BoE standards.
To mitigate systemic risk, the BoE retained plans to cap the amount of stablecoins individuals and businesses can hold, a measure not mirrored in other major markets. Larger corporates may be exempted where necessary.
In a noteworthy shift, the BoE said it is considering central-bank liquidity facilities for major issuers during market stress, effectively offering a backstop if they cannot liquidate assets in private markets.
Balancing Innovation and Financial Stability
While some in the crypto sector see the caps and oversight as overly cautious, others say the new framework reflects a pragmatic balance between innovation and financial stability. By permitting interest-earning investments and offering potential liquidity support, the BoE is signalling a willingness to engage constructively with the digital-asset economy.
The central bank will supervise only those stablecoins “deemed capable of becoming widely used for payments,” leaving smaller tokens and trading-linked coins under FCA jurisdiction.
The Bigger Picture
As major economies race to define their digital-currency regimes, Britain’s evolving approach highlights its determination to stay at the forefront of fintech innovation while maintaining firm regulatory oversight. The Bank of England’s softened stance signals an effort to balance risk with opportunity, ensuring that London remains a hub for digital finance even as competition intensifies from the US, the EU, and Singapore.
If successfully rolled out in 2026, the new stablecoin regime could position the UK as a bridge between traditional banking and emerging crypto economies, offering a model that encourages innovation without compromising monetary stability.
Britain is betting on regulation as its strategic advantage in the global digital-currency race.
